Best use of £300 a month

Millymoodle

I am a 52 year old teacher who could take actuarially reduced pension at 55. My annual pension will be enough to live on so I'm not worried about that. At 55 I will still have around £55K in a mortgage. I will have a lump sum when I retire that I could use to pay off the mortgage. No other debts and onlya few thou in savings. I have around £300 a month that I'd like to use wisely in preparation for retirement and it would be nice to think I could go in 2 years if I want to. Would you suggest..

• paying it into a S&S isa to try and build up some funds (but leaving it alone till I'm say 60)
• use it to overpay my mortgage every month and reduce that first?
• something else I hadn't thought of

HappySeagull

How about AVCs, if your pension scheme allows them? That avoids paying tax, so is worth more than £300. That's what I did, anyway!

Also, don't assume that paying off your mortgage is always the best move (either now or at retirement) - it depends on interest rates and your requirements for cash.

I'm sure other posters will come up with more ideas...

dunstonh

AVCs are largely obsolete nowadays. There are still some schemes where the AVC can be beneficial (e.g. extremely rare ones that match contributions or the minority which allow the lump sum to be taken from the AVC rather than the main scheme). However, most AVCs appear to be poor value compared to personal pensions and S&S ISAs and indeed, many AVCs have been pulled as they are no longer required to be offered.

jem16

Millymoodle wrote: »

something else I hadn't thought of

Depends on your tax situation - are you a basic rate taxpayer or higher rate taxpayer?

AVCs have been mentioned but no great advantage to them as they only allow 25% tax free lump sum and the rest as an annuity.

Other option is to buy Additional Pension but if you are a basic rate taxpayer, you wouldn't gain anything.

If you're a higher rate taxpayer, pension is the best option provided you will only pay basic rate in retirement.

S&S ISA would be a good option if you use the funds to brdige the gap between retiral at age 55 and taking your pension without any actuarial reduction at age 60.

xylophone

https://www.teacherspensions.co.uk/members/the-scheme/active-teacher/pay-more-to-get-more.aspx

https://www.teacherspensions.co.uk/members/member-hub.aspx

You could have a look here.

S&S ISA would be a good option if you use the funds to brdige the gap between retiral at age 55 and taking your pension without any actuarial reduction at age 60.

If the OP stops work at 55 and does not draw her (actuarially reduced) pension, she won't have any income except savings income? (Apparently at the minute, age 52, she has

onlya few thou in savings).

She'll be asking a lot of the proposed S&S ISA (£10800 invested over three years age 52-55) to achieve enough income to pay her mortgage and live for the next five years?

jem16

xylophone wrote: »

She'll be asking a lot of the proposed S&S ISA (£10800 invested over three years age 52-55) to achieve enough income to pay her mortgage and live for the next five years?

No you're correct if there is no other income.

Millymoodle

There is no other income. I'm thinking I'll draw my reduced pension at 55. I'm a higher rate tax payer now (but won't be after I retire). Would you say I would be better paying off the mortgage? Hadn't thought of buying additional pension.

jem16

Millymoodle wrote: »

I'm a higher rate tax payer now (but won't be after I retire).

How much into higher rate tax are you?

Would you say I would be better paying off the mortgage?

Depends on the miortgage rate but is unlikley to be better than getting 40% tax relief and paying 20% in retirement on the income.

Millymoodle

I earn £55K now. Jem are you saying there that extra pension is the way to go?

jem16

Millymoodle wrote: »

I earn £55K now. Jem are you saying there that extra pension is the way to go?

As you are paying 40% tax on approximately £14k of your income, then yes I would say extra pension of some sort would be most beneficial.

It looks like you will be a basic rate taxpayer in retirement so gaining 40% tax relief now and paying 20% later is an automatic gain.

Whether you go for Additional Pension or SIPP/PP/AVC route is down to you.

atush

If you earn 55K a year, and have only a few thousand in savings, will use your TFLS to pay off mtg i'd say it is clear you don't have enough in savings (nor do you have enough to retire early at 55).


id go the extra pension route, and hopefully build a bigger LS. And i'd forget retiring at 55.